Guardian Disability Insurance Brokerage

Understanding Your Disability Insurance
The Difference between Employer & Individual Plans
by Thomas Lloyd

Many of my clients share a general assumption that their employer’s long term disability plan will protect them with benefits if they cannot work in their own profession until the age of 65. Unfortunately, this assumption may be a serious liability if you suffer a long term disability which lasts longer than two or five years. Here are some broad differences about employer sponsored group plans and individual plans.

The most important feature of any disability insurance policy, group or otherwise, is its definition of ‘total disability’. This definition will determine whether you are going to receive a benefit for your disability.

Many group plans share a modified own-occupation definition of disability for their plans. Translated, this definition often reads:

Because of sickness or injury you are unable to perform the material and substantial duties of your occupation, and are not engaged in any other occupation.

This means you will be considered disabled and eligible to receive a benefit from the insurance company if you cannot work in your specific occupation and not earning an income in another job.

Sounds fine, right? Well, there’s a clause within most of these contracts that could jeopardize your ability to continue receiving that benefit if your disability lasts longer than two or five years.

This clause states that if a disability lasts longer than 2 years or 5 years then the definition of disability will change to an Any-Occupation form. Translated, this definition typically reads:

If you are unable to perform the material and substantial duties of your occupation, because of sickness or injury, or any occupation for which you are deemed reasonably qualified by education, training, or experience.

This means you will be considered disabled and eligible to receive a benefit from the insurance company only if you cannot work in ANY occupation, not just your job. Consequently, this allows the insurance company to re-evaluate your disability and challenge your claim if the insurer determines that you are capable of performing any number of other jobs, even if those jobs don't require the level of skill you worked so diligently to acquire to perform your own occupation.

Many people don’t look over their group plans disability contracts and that is why this issue really does not rear its ugly head too often.

Conversely, with most comprehensive individual policies (they are called individual because the insurance is just for yourself) your contract will be locked in with an ‘Own-Occupation’ disability definition to age 65.

Another advantage with an individual policy is that you can bring it with you wherever you work, even if your employer doesn’t offer any insurance. This allows the piece of mind knowing your disability insurance will always be there for you regardless of where your career goes.

While the cost is generally higher for an individual plan than a group plan, it is money well spent because you really need disability policy benefits when you have a long term disability.